Tata Motors says demerger will allow all businesses to unlock potential

Mumbai: The proposed demerger of Tata Motors—into two separate commercial and passenger vehicle entities—will allow the resultant companies to better utilise their cash flows and sharpen focus on their respective growth strategies, the top management of the automaker said on Wednesday.

The company’s commercial vehicles (CV) unit, which has so far been the money-spinner for of the combined Tata Motors, will be able to invest its cash flows for its own strategic goals, they said.

Meanwhile the passenger vehicles (PV) business, which has recently become self-sustainable, will focus on achieving 10% Ebitda (earnings before interest, taxes, depreciation, and amortization, a measure of core profitability) margins across its combustion engine and electric vehicle segments.

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As part of the demerger, the CV business along with its related assets will be carved out of the top company (Tata Motors) into a new entity, said P.B. Balaji, the group chief financial officer at Tata Motors. The PV business, now housed in a subsidiary, will then merge with the top company. The electric vehicles business and Jaguar Land Rover will continue to remain as subsidiaries of this top company.

“It’s about bandwidth, agility and focus. A ₹80,000 crore business (commercial vehicles) is very large. And it is growing and generating tonnes of cash,” said Balaji.

“So, you need management bandwidth and the board’s time for this. With this split, they can double down on CV and respect the opportunity that CV provides and give it the full muscle that it requires,” he said.

The gross debt of Tata Motors will be split between the two emerging companies in proportion to their assets. Currently, the CV business has about 60% of the assets, Balaji said.

The company expects the demerger to take 12 months.

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During this period, Jaguar Land Rover, the British arm of Tata Motors, is expected to become net debt free, he said. The company has no plans to demerge JLR into a separate company at the moment, he added.

Tata Motors’ standalone India business achieved zero net debt as of FY24.

Post the demerger, the CV business will have eight business verticals, three of which have been newly created. These include medium and heavy CV, intermediate and light CV, small CV, buses, international business, downstream spares and services, smart city mobility and digital business.

Tata Motors is the country's largest CV maker.

“This demerger will allow the CV business to go behind its own aspirations. There will be freedom in terms of accessing capital and grow in areas which will not have taken priority otherwise,” said Girish Wagh, executive director, Tata Motors. Wagh is heading the commercial vehicles business unit.

The PV business will focus on increasing its market presence, said Shailesh Chandra, managing director, Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility.

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The company’s present portfolio allows it to participate in 53% of India’s PV market, which saw 4.2 million units sold in FY24. The company plans to increase this to 80% market coverage by 2030 with the launch of new products, Chandra said.

To increase the adoption of EVs, Tata Motors plans to tie-up with Tata Power and sell its electric cars with rooftop solar as a bundle, he added.